Basics of Distributing Retirement Assets

In 1984, the New York Court of Appeals decided Majauskas v. Majauskas, 61 N.Y.2d 481 (1984). This is the case that decided that the portion of the spouse’s pension, earned during the marriage, is marital property subject to equitable distribution. To the extent that a pension was earned during the marriage, it is, for purposes of New York law, considered marital property. The Majauskas decision sets forth the formula that normally is to be followed in dividing a pension plan. Along with pension plans, other types of retirement assets are divided in a typical divorce case. Retirement assets are usually divided by a QDRO.

A QDRO stands for a “Qualified Domestic Relations Order”. It is an order required by the 1974 federal statute known as ERISA (Employees Retirement Income Security Act), and applies to certain pension vehicles. QDRO may transfer retirement benefits from an employee-spouse to a spouse, former spouse or child of the employee. It must comply with the requirements of state law, as well as ERISA and other federal laws. The state domestic relations law aspects of a QDRO must be approved by the domestic relations judge, while the federal law aspects must be approved by the plan administrator from which the benefits are to be paid.

QDRO’s deal with participants and alternate payees. A “participant” is an employee who participates in either an employer sponsored or a union-sponsored qualified employee benefit plan. An “alternate payee” is a person to whom benefits are transferred in a QDRO and that person must be a spouse, former spouse, child or other dependent of the participant.

Qualified plans are divided under the Internal Revenue Code into two categories:

(1) Defined contribution plans;
(2) Defined benefit plans.

A defined contribution plan is a plan that requires the establishment of an individual account for each participating employee and provides benefits only from the amount contributed to the employee’s account, together with any income, expenses, gains or losses that are attributable to the account. Under a defined benefit plan the controlling factor is the benefit that will be provided to the employee upon his/her retirement and the amount contributed each year is actuarially computed to produce the desired benefit at the time of an employee’s retirement.

It is necessary to ascertain the type of plan to which the QDRO is directed and to understand the significance of a particular plan in the context of a QDRO. The most commonly used types of qualified employee benefit plans include:

(1) Traditional pension plans (defined benefit plan);
(2) Annuity plans (defined benefit plan);
(3) Profit-sharing plans (defined contribution plan);
(4) Money purchase pension plans (defined contribution plan);
(5) Target benefit plans (defined contribution plan);
(6) Employee stock ownership plans (defined contribution plan);
(7) 401(K) plans (defined contribution plans);
(8) Savings (or Thrift) plans (defined contribution plan);
(9) Simplified employee pension plans (i.e., SEP) (defined contribution plan);
(10) Cash balance pension plans (defined benefit plan);
(11) Hybrid plans (features of both defined benefit and defined contribution) – used by many public employee and teacher retirement programs.

Where both spouses have a pension, each may get a portion of each other’s pension, or create some other arrangement that benefits both parties. It is also possible to trade off pensions for other property in the marriage, or a spouse may waive his/her right to receive the pension.

Division of a pension is not automatic. The court has discretion to award the entire pension to the earner where, for example, there is a significant disparity in income.

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